How to Formulat Incentives for Demand-Side Response in Energy Storage

2. Economic Incentives

(a) Capacity Compensation Mechanism

1. Provide a one-time installation subsidy based on the rated power and storage capacity of the energy storage system. For instance, offer a subsidy for each kilowatt (kW) of rated power and per kilowatt-hour (kWh) of storage capacity, reducing the initial investment cost of energy storage systems and encouraging the construction of more storage facilities.
2. Establish monthly or annual compensation based on the availability of storage capacity. Compensation is calculated based on the effective storage capacity that the system can provide within a certain period, motivating operators to maintain optimal system performance and high availability.

(b) Energy Compensation and Pricing Incentives

1. Compensate the energy storage systems for the energy discharged during DSR events. This can include a price subsidy based on discharge volume, where discharge prices exceed the costs of charging, providing operators with reasonable revenue during discharge.
2. Provide additional pricing incentives for discharging during peak periods and charging during off-peak periods. For example, implement peak-period price premiums for discharge and larger off-peak discounts for charging, guiding storage systems to better support peak-shaving and valley-filling roles.

(c) Performance Rewards

Provide additional economic rewards to storage operators with high response speed and accuracy (e.g., systems that follow dispatch commands accurately and maintain minimal power errors during charge and discharge). This reward can be a one-time bonus or annual/quarterly performance-based incentive.

3. Non-Economic Incentives

(a) Market Access and Priority Dispatch

1. Ensure the legitimate role of energy storage in DSR in electricity market rules, guaranteeing equal market competition rights for operators. For storage systems that meet specific technical and response criteria, grant priority access to the DSR market.
2. Grant priority dispatch rights to energy storage systems during grid scheduling, especially in emergency situations, where storage can receive immediate dispatch instructions, playing a critical role in grid stability. This incentive enhances the operators’ market standing.

(b) Technical Support and Collaboration Opportunities

1. Grid companies or relevant government departments can provide operators with free or low-cost technical consulting, including guidance on system optimization and fault diagnosis. Organize technical training and seminars to foster industry-wide exchange and collaboration.
2. Offer operators opportunities for collaboration with other energy companies and research institutions. For example, suggest involvement in joint R&D projects to develop new storage technologies or collaborative solutions, enhancing operators’ technical expertise and development potential.

(c) Honors and Certifications

1. Establish awards specifically for DSR in storage, such as “Outstanding Energy Storage DSR Enterprise,” to recognize exceptional performance and improve social reputation and corporate image through media promotion.
2. Grant certifications to storage systems that meet certain high-quality and high-performance standards. These certifications can provide competitive advantages in market transactions and bidding processes, strengthening operators’ market competitiveness.

4. Information Sharing and Risk-Sharing Incentives

(a) Information Sharing Platform

Create a DSR information-sharing platform to release real-time information on grid status, DSR demand, and electricity price forecasts. Operators can use this information to optimize their operating strategies, enhancing participation efficiency and profitability. The platform can also collect operational data for policy-making and market supervision.

(b) Risk-Sharing Mechanism

1. Develop risk-sharing mechanisms to address potential risks faced by storage systems in DSR, such as market price fluctuations or equipment failures. Governments or grid companies can establish risk funds to partially compensate operators for losses due to uncontrollable events or abnormal market conditions.
2. In energy management contracts involving storage, reasonably share the risks of performance degradation. For instance, if storage equipment performance falls below expectations within a specific period, the equipment supplier, operator, and other parties share responsibility, alleviating operators’ concerns.

5. Supervision and Evaluation Incentives

(a) Establish a Regulatory System

Strengthen regulation in the DSR market for energy storage, ensuring fair implementation of incentives. Regulatory authorities should scrutinize operators’ qualifications, responses, and compensation claims, preventing fraud and unfair competition. Penalties for violations may include fines or temporary market exclusion, preserving market order.

(b) Regular Evaluation and Adjustment

1. Conduct regular evaluations of incentive effectiveness, gathering feedback from operators, grid companies, and users. Key metrics can include storage participation rate, grid stability improvement, and operator revenue levels.
2. Adjust incentives based on evaluation results. If some measures prove ineffective or unreasonable, modify them to better align with the evolving DSR market needs.

By applying a comprehensive range of economic, non-economic, information-sharing and risk-sharing, and regulatory incentives, energy storage participation in DSR can be effectively promoted, driving the collaborative development of the energy storage industry and the power system, and realizing optimal and efficient allocation of energy resources.